The stock market’s impressive rally to new highs has some pundits feeling concerned about the potential impact of the next correction. Indeed, a 10-15% pullback is bound to hit at some point. However, it may not be felt evenly. The biggest winners look to tread water while the rest of the market plays catch up.
Thursday’s remarkable mid-cap surge was a pretty bad day for mega-cap tech stocks. Perhaps the next market pullback won’t be nearly as unkind to the “safe” value stocks that haven’t been riding higher on artificial intelligence (AI) excitement.
At some point, AI expenditures will need to start producing some sufficient cash flows. And if they don’t do so in accordance with analyst expectations, perhaps a bit of pain will be in the cards. Either way, let’s look into some of the less-appreciated names that should be spared from considerable downside if mega-cap tech drags the markets down.
Berkshire Hathaway (BRK-A, BRK-B)
Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B,) is an easy buy for those looking to be cautious but optimistic. Indeed, Warren Buffett’s patience, skepticism and value-conscious approach have won out. Berkshire Hathaway has steadily risen to become one of the largest companies in the U.S.
Examine the top publicly traded stocks by market cap. Many hover on the cutting edge of innovation, with massive triple-digit percentage moves clocked in over the past five years. Though Berkshire Hathaway soared by a respectable 95% in the last five years, it’s done so cautiously.
Even if stocks were to plunge from here, the stock sits in a great place, with its record cash pile of $189 billion and longing for better valuations. Indeed, you need lots of dry powder to come out on top following market sell-offs, and there’s no shortage of it on Berkshire’s balance sheet.
For the year ahead, a move into the $1 trillion market cap club may be in the cards. Indeed, Berkshire Hathaway stock inches steadily higher on the back of its incredibly well-run businesses.
Waste Management (WM)
Waste Management (NYSE:WM) is a defensive firm that can more than hold its own when markets begin to roll over. At the time of writing, WM stock is trading sideways after enjoying a sharp spike in the first two months of the year. Despite shining as a defensive stock, the firm has found a way to keep growth going strong.
The company’s $7.2 billion acquisition of Stericycle (NASDAQ:SRCL) is an outstanding move that further enhances its growth profile and already massive moat. After rising 18% year-to-date (YTD), WM stock looks fully-valued at 34.7 times trailing price-to-earnings (P/E).
Nevertheless, analysts at Deutsche Bank still see more upside ahead for the trash collector. Specifically, Deutsche Bank started WM stock with a buy rating. It remains upbeat about the WM’s ability to drive cash flows higher in the coming three years.
Through smart acquisitions and exceptional operational efficiencies, Waste Management stands out as a safety stock that can endure any environment.
Nike (NKE)
Nike (NYSE:NKE) does not fit the traditional definition of a safety stock. Sales slumping and the stock tanking seems that no bottom is in sight. After the latest double-digit post-earnings crash, NKE stock is down close to 60% from its all-time highs.
Management is trying its best to invest in growth drivers. But for now, investors don’t seem to be buying into it. With perceived risks and uncertainties at a high point and the valuation—trailing price-to-earnings (P/E) sitting just below 20x—at a multi-year low point, perhaps NKE stock has a wider margin of safety than you’d expect.
It could take time before Nike’s scrambling efforts help the stock pull off a pivot. However, if Nike can modestly jump over an ever-lowering bar set in front of it, the stock may have what it takes to rally again, even without help from broader markets.
In short, Nike is much-hated in the weeks following the sneaker firm’s worst day in over 50 years. Perhaps it’s time to jump in now that most are willing to part with their NKE shares at a big markdown.
On the date of publication, Joey Frenette held shares of Berkshire Hathaway (Class B). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.